Tax exemption for bus hire charges under U.P. Trade Tax Act

Mohd. Wasim Khan Versus Commissioner of Trade Tax

Mohd. Wasim Khan Versus Commissioner of Trade Tax - [2009] 20 VST 196 (All) Issues Involved:
1. Whether the hire charges received for providing buses for transportation of employees are liable to tax under section 3F of the U.P. Trade Tax Act, 1948.
2. Whether there was a transfer of the right to use the buses, which necessitates the transfer of possession and control to the companies.

Issue-wise Detailed Analysis:

1. Tax Liability on Hire Charges:
The primary issue in this case was whether the hire charges received by the applicant for providing buses to certain companies for employee transportation were subject to tax under section 3F of the U.P. Trade Tax Act, 1948. The assessing authority had levied tax on these hire charges, considering them as charges for the transfer of the right to use the buses. This decision was upheld by the first appeals and partially by the Tribunal, which reduced the turnover but maintained the tax liability.

2. Transfer of Right to Use the Buses:
The applicant contended that there was no transfer of possession or effective control of the buses to the companies, which is a necessary condition for the transfer of the right to use the goods under section 3F. The applicant maintained control over the buses, including providing drivers, bearing maintenance costs, and retaining legal responsibilities such as insurance and permits. The applicant argued that without the transfer of possession, the hire charges could not be taxed under section 3F.

The learned counsel for the applicant cited several judicial precedents, including the apex court's decision in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. and other relevant cases, to support the argument that effective control and possession must be transferred for the transaction to be taxable under section 3F.

Contractual Terms Analysis:
The court examined the terms of the contracts with the companies (IFFCO, BPCL, and GEC). Key contractual terms included:
- The applicant retained control over the buses, including providing drivers and bearing maintenance costs.
- The companies directed the use of the buses but did not assume possession or control.
- The applicant was responsible for all legal obligations and risks associated with the buses.
- Payment was based on actual use, and penalties were imposed for non-compliance by the applicant.

Judicial Precedents:
The court referenced several judicial precedents to determine the nature of the transaction:
- In Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, it was held that effective control must be transferred for the transaction to be considered a transfer of the right to use.
- The decision in Kandoi Transport v. Sales Tax Officer emphasized that mere receipt of hire charges does not constitute a transfer of the right to use if control and possession remain with the owner.
- The larger Bench of the apex court in Bharat Sanchar Nigam Ltd. v. Union of India clarified that the transfer of the right to use requires deliverable goods and transfer of control.

Conclusion:
Based on the contractual terms and judicial precedents, the court concluded that there was no transfer of the right to use the buses to the companies. The effective control and legal responsibilities remained with the applicant. Therefore, the hire charges received were not liable to tax under section 3F of the Act.

Final Judgment:
The court set aside the Tribunal's order and directed the Tribunal to pass an appropriate order under section 11(8) of the Act, concluding that the hire charges were not taxable under section 3F. The revisions were allowed without any order as to costs.